What Is the U.S. Reciprocal Tariff Policy?

In February 2025, President Trump announced a "Fair and Reciprocal Plan" to counter non-reciprocal trading arrangements with partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner. Beyond existing tariffs on U.S. goods, the plan factored in value-added tax (VAT), nontariff barriers, and other practices judged to impose unfair limitations on market access or structural impediments to fair competition with the U.S. market economy.

The White House unveiled the reciprocal tariff plan on April 2, 2025, during a "Liberation Day" Rose Garden event. The plan established an additional 10% ad valorem rate of duty on all imports from all trading partners starting April 5, 2025.

The legal foundation was the International Emergency Economic Powers Act (IEEPA), under which the president declared a national emergency based on persistent trade deficits. That foundation, however, would not survive judicial scrutiny.

How the Tariff Rates Were Structured

Key rate decisions and escalations in chronological order:

  • April 2, 2025: Trump announces a 34% reciprocal tariff on China, on top of existing duties.
  • April 9, 2025: A 90-day pause was announced on higher reciprocal rates for over 75 countries, with China excluded, facing a combined rate of 125%.
  • May 14, 2025: The reciprocal tariff on China was reduced to 10% for 90 days following an agreement, then extended for another 90 days in August.
  • The U.S. and European Union finalized a trade agreement introducing a 15% baseline tariff on EU imports, with specific industries such as automotive, pharmaceuticals, and semiconductors subject to further negotiations.

The Supreme Court Strikes Down the IEEPA Tariffs

This is the most consequential legal development in the tariff saga. On February 20, 2026, the United States Supreme Court issued its landmark decision in Learning Resources, Inc. v. Trump, holding in a 6-3 ruling that IEEPA does not authorize the president to impose tariffs, invalidating both the reciprocal tariffs first imposed in April 2025 and the trafficking and immigration tariffs relating to fentanyl.

As expected, the administration announced a global tariff of 10% under Section 122 of the Trade Act of 1974 just a few hours after the decision was handed down, effective February 23, 2026. Section 122 is the most immediate action the administration may take, as it allows the president to impose tariffs of up to 15% for up to 150 days to address a large and serious U.S. balance-of-payments deficit. After the 150 days, Congress must approve the tariffs.

On May 7, 2026, a divided three-judge panel at the U.S. Court of International Trade invalidated the Trump administration's 10% tariff imposed under Section 122, dealing another blow to the administration's trade agenda. The legal battle over tariff authority is ongoing.

Economic Impact: Prices, GDP, and Business Costs

Inflation and Consumer Prices

Tariff changes through November 2025 raised core goods PCE prices cumulatively by 3.1% through February 2026, explaining the entirety of excess inflation in the core goods category relative to pre-pandemic inflation rates and boosting core PCE prices as a whole by 0.8%.

As of November 17, 2025, the Budget Lab at Yale University calculated the average tariff rate to be 16.8% in the United States, a considerable jump from the less than 2% average from 2000 to 2024.

The Trump tariffs represent the largest U.S. tax increase as a percent of GDP since 1993 and amount to an average tax increase per U.S. household of $1,500 in 2026.

GDP and Growth Projections

Global real GDP growth was expected to be 1.4% in the fourth quarter of 2025, down from 2.1% at the start of the year. J.P. Morgan's chief U.S. economist Michael Feroli noted that announced tariff measures took the average effective tariff rate from around 10% to just over 23%. The new tariffs could raise just under $400 billion in revenue, or about 1.3% of U.S. GDP, which would be the largest tax increase since the Revenue Act of 1968.

Sector-level impacts are uneven:

  • The tariffs disproportionately hurt U.S. agriculture and durable manufacturing sectors by reducing output, employment, and increasing prices.
  • As a rule of thumb, every one percent rise in the effective tariff rate may reduce GDP growth by 0.1% to 0.2% over time, depending on pass-through, foreign retaliation, and monetary policy.
  • Import prices including tariff-related costs were up nearly 10% through 2025, with U.S. businesses absorbing most of the tariff cost burden rather than passing it fully to consumers.

What Comes Next for Importers

For businesses that paid tariffs imposed under IEEPA, the Supreme Court ruling opens the door to potential refunds. Penn-Wharton Budget Model economists estimate that IEEPA-based tariff collections total approximately $175 billion to $179 billion. More than 1,000 businesses had already sought tariff refunds before the ruling was issued.

Trade Relationships and Policy Outlook

U.S.-China Trade

At the October 30, 2025 Xi-Trump meeting, the fentanyl tariff rate was reduced to 10% and the reduced reciprocal tariff rate of 10% was extended for one year. In November 2025, the U.S. exempted some agricultural goods not grown domestically from the reciprocal tariff.

Administration's Remaining Tariff Tools

With IEEPA and Section 122 both legally challenged, the administration has shifted to alternative trade enforcement mechanisms:

  • Section 301 empowers the U.S. to impose tariffs in response to unfair or discriminatory trade practices by foreign countries but requires a formal investigation process that can take up to nine months.
  • Section 338 authorizes the president to impose tariffs of up to 50% on imports from countries that discriminate against U.S. commerce, though it has not been used since 1949.
  • On March 12, 2026, USTR launched new Section 301 investigations into the acts, policies, and practices of 60 economies relating to their failure to prohibit imports of goods produced with forced labour.